When does betting on US stocks become too much?

Professional investors across Europe, Asia, and beyond are starting to panic over how deep they are into US stocks, and most of them have no idea how to pull back without wrecking everything. This overexposure wasn’t planned.

It just happened, slowly and quietly, over years of defaulting to America every time the rest of the world looked shaky. But now, with Donald Trump back in the White House and global markets looking unstable, that old habit is becoming a liability.

For decades, putting money in the US was the safest bet you could make if you managed big portfolios. Fabiana Fedeli, chief investment officer for equities at M&G Investments, said, “When you didn’t know where else to go, the US was the choice.”

She explained that no one ever got fired for leaning too hard into US stocks. That’s how safe the play used to be. But now, as countries like Turkey and the UK face consequences from their own weird economic experiments, the US is doing the same. And the damage hits harder because US assets make up the largest part of most major portfolios.

Wall Street’s dominance starts to raise alarms

The conversation now is about what the new “neutral” exposure should look like. Everyone wants to know the same thing—what’s too much? The way things are, about 70% of the average developed market index is made up of US companies.

This makes sense if the US is delivering big returns and staying politically stable. But things have changed. The tech sector—which has been the main driver of those returns—was built on the same global trade that Trump is now trying to roll back.

Global competitors are catching up. At the same time, political chaos and weak institutions are starting to scare investors. European money managers, who used to be the most aggressive about chasing the US market, are finally stepping back.

That fear is starting to show. After a sharp drop in the markets last summer, concern about concentrated US exposure exploded. Société Générale is now pushing what it calls the “Great Rotation,” a move away from US assets and toward other regions. And it’s not just talk.

George Saravelos, global head of FX research at Deutsche Bank, said, “The flow evidence so far points to an, at best, very rapid slowing in US capital inflows and, at worst, continued active disinvestment from US assets.” He added that foreign investors are now basically on a “buyers’ strike,” judging by how little they’re putting into US-heavy ETFs.

Global investors search for the new normal

The real issue is that no one agrees on what the right level of US exposure should be. Fabiana said her clients in Europe and Asia are not asking if they should rebalance—they’re asking how. She said American investors are still focused on their own backyard and assume everything will go back to normal soon. She doesn’t believe that’s going to happen.

She also suggested a different strategy. Instead of tracking market size, some think exposure should reflect how much each country contributes to global GDP. That would drop the US allocation to about 25%, maybe 30% if you shave off part of China’s share due to its poor accessibility.

But even Fabiana admitted, “It’s unlikely to go to 30 per cent in my lifetime.” That change would require a total overhaul of how capital is managed globally.

A more realistic target might be 55%, based on Société Générale’s estimate that US companies generate about that much of the world’s earnings. Maybe a bit higher, because the US market is more liquid. But that’s still a big drop from the current 70%.

Any serious move away from the US won’t happen overnight. No one expects a massive sell-off. The change will likely come from where new investment money goes. If it starts flowing into Europe, Asia, or emerging markets instead, the balance will change over time.

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